Submitted by Phoenix Capital Research on 08/03/2012 08:08 -0400
Ben Bernanke
Black Swan
Bond
default
ETC
Hyperinflation
Monetization
Now, about that Bernanke Put.
Many people believe that because Bernanke once talked about dropping money out of helicopters to fight deflation that he literally meant that he would do this if push came to shove. He didn’t. The whole thing was a bluff meant to prop up the markets: the famed Bernanke Put.
Truth be told, this bluff is probably the smartest thing Bernanke ever did. By threatening to leave a paperweight on the “print” button, he convinced the market and all of Wall Street that the Fed would always be there to step in and save the day.
Let’s say the Fed just hits “print” and prints TRILLIONS of dollars to monetize everything under the sun. If this happens then the bond market will implode taking down the US financial system with it (85% of the $224 trillion in derivatives sitting on US bank balance sheets are related to interest rates).
Moreover, it’s not as though “printing” solves a solvency crisis. Instead it results in a loss of faith in the underlying currency, which causes hyperinflation (this is exactly what happened in Weimar). Most people forget that hyperinflation is the SAME as defaulting: in both situations the underlying currency becomes worth much less if not worthless.
So printing is ultimately a useless concept. But what about debt monetization? Couldn’t the Fed just print tons of money to buy Treasuries and other debt instruments?
The answer here is ALSO a resounding “NO.”
The reasons are three-fold:
http://www.zerohedge.com/contributed/2012-08-03/bernanke-put-lie
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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